Will Norwegian become a sister airline to British Airways?

‘You will always see airlines come and go. Mostly you will see them go,’ says Norwegian’s founder, Bjorn Kjos

Simon Calder
Travel Correspondent
Wednesday 16 May 2018 15:14 BST

Remember British Midland (later BMI)?

Dan-Air, or “Dan Dare” as the airline was commonly known?

British Caledonian?

All were excellent independent airlines, and all ended up being bought by a much bigger carrier, British Airways.

BA is now the senior partner in the IAG conglomerate, which also includes Aer Lingus, Iberia and Vueling. And IAG has bought a slice of another excellent independent airline, Norwegian, saying: “The minority investment is intended to establish a position from which to initiate discussions with Norwegian, including the possibility of a full offer.”

History suggests that a takeover is likely, and the market seems to think so, too. Had you wisely bought £100 in shares in the Oslo-based airline on Wednesday evening, by Thursday you would be £50 richer.

I judge it unlikely that IAG will simply cash in its windfall and walk away. Norwegian is seen as a threat which could be transformed into an opportunity.

Gatwick has blossomed into a low-cost, long-haul hub. By midnight on Friday, a procession of Norwegian jets had departed for New York, Seattle, Fort Lauderdale, Singapore, Oakland (the budget gateway for San Francisco), Los Angeles, Chicago, Boston, New York again and Buenos Aires

Those 10 intercontinental flights represent many seats which need filling. The airline most likely to lose passengers? BA, which also saw its customers poached by the scheduled services of British Midland, Dan-Air and British Caledonian.

Like the first two of those carriers, Norwegian is not in the finest financial shape. Its bid to stake a short-haul claim at Gatwick, flying everywhere from Berlin to Barcelona, has not been a great success, and the European network has retrenched largely to a Scandinavian heartland.

Flying transatlantic links from Cork, Shannon, Belfast and Edinburgh was a bold move, but has not turned out to be a game changer; on Friday afternoon it was revealed that several routes from these airports would become summer-only to staunch losses.

At a time when, unusually, most airlines are raking in cash, Norwegian has built up £2bn in debt, with some expensive new aircraft on the way as the fleet expands to nearly 200 planes by next year.

Competition is intensifying, too, with British Airways announcing “Economy Basic” fares this week, its sister airline Level expanding and Primera Air about to start no-frills transatlantic flights from Stansted.

So why would IAG want to start flirting with a rival, rather than sitting back to watch what could prove an uncomfortable summer for Norwegian?

Because Norwegian has some appealing characteristics: experience in low-cost, long-haul aviation which could prove valuable as Level expands; some interesting (for IAG) cost-cutting practices, including employing some flight crew on South-East Asian terms; and an order book of attractive new aircraft at pretty good prices.

And as BA demonstrated with British Caledonian, Dan-Air and British Midland/BMI: a good way to get rid of an annoying competitor is to buy it.

For a perspective of what an IAG takeover might mean, I turned to Laurie Price, who was around at “BCal” in 1987 when what was described as a “merger” with British Airways took place.

“Norwegian is a good match,” he says, and speculates that the Scandinavian carrier would be kept as a distinct brand within IAG.

“Ironically, a differentiated product development at Gatwick is what BA should have done 30 years ago when it paid £250m for British Caledonian. But British Airways did not have the right vision or leadership then.”

With Aer Lingus aggressively expanding across the Atlantic, and Level spreading its wings as a low-cost, long-haul startup, I wonder if another brand – especially one with a narrowly geographic name – would work long term?

But Norwegian’s portfolio of Gatwick slots comes into play as well. While permissions to land and take off from the Sussex airport are not as rare commodities as slots at Heathrow, their value will only increase with every year in which a new runway remains unbuilt.

“The Norwegian slots allow BA to build there, in a proven market, and achieve greater economy of scale.”

As British Caledonian back office staff in their hundreds found after the British takeover, one result of Norwegian falling into the clutches of IAG would be a swift cull of management with duplicating roles. I hope the people working at the Oslo HQ bought plenty of shares – before the price soared.

For the passenger, meanwhile, any reduction of competition spells higher fares and less choice. I fear the fares war to Fort Lauderdale will not last long. But as Norwegian’s founder and chief executive Bjorn Kjos told me: “You will always see airlines come and go. Mostly you will see them go.”

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